SMM Lead Market Morning Review (2015-2-4)

SHANGHAI, Feb. 4 (SMM) – LME lead overnight started at USD 1,852/mt and then surged to as high as USD 1,872/mt on Tuesday. The price of the soft metal, however, fell at the tail of the trading due to increased selling and ended at a trough of USD 1,850.5/mt. Trading volumes for three-month lead on the London Metal Exchange gained 194 lots to 3,202 lots, while positions added 293 to 120,772. LME lead inventories decreased 500 mt to 214,350 mt on Tuesday.

Lead for April delivery on the Shanghai Futures Exchange, the most active contract, opened at RMB 12,535/mt and then hovered above RMB 12,550/mt in Tuesday’s night session. The price of the SHFE 1504 lead contract closed up RMB 65/mt at RMB 12,565/mt. Trading volumes for the most active contract totaled 1,700 lots, while positions increased 134 to 14,506.

Greece’s Finance Minister Yanis Varoufakis at a meeting with investors in London proposed ending a standoff with its international creditors by swapping its outstanding debt for new growth-linked bonds. However, the minister reiterated that the Greek government still sticks to its stance on the debt issue. Although uncertainties surrounding situations in Greece persist, investors are expecting a turnaround.

Royal Dutch Shell Plc negotiators met on Monday with the union representing workers at US refineries as a strike stretches into a third day after talks on a new national contract broke down. A United Steelworkers spokeswoman said no progress was made toward a new agreement after the two sides discussed the issues. This, combined with energy producing companies slashing expenditures, gave a boost to the crude market, sending US crude benchmark prices up 7% on Tuesday.

US factory orders tumbled 3.4% MoM in December, a bigger fall than a 2.4% decline expected. The orders for November fell a revised 1.7%. The country’s durable goods orders declined a revised 3.3% MoM in December, pointing to slowing manufacturing activity.

Money rates are rising as liquidity tightens due to the upcoming Chinese New Year and the launch of another round of IPOs. The People’s Bank of China injected a total of RMB 90 billion by conducting RMB 35 billion of 7-day reverse repurchase agreements and RMB 55 billion of 28-day reverse repurchase agreements on Tuesday.

The US dollar index fell almost 1%, while the euro surged 1.24% versus US dollar. Major world shares rose across the board. LME base metals all ended with gains, with copper up nearly 4%.

The sharp rebound in crude and the slide in the US dollar index should combine to boost base metals prices, but lead is expected to post the worst performance relative to other base metals. LME lead is set to continue testing support at the 20-day moving average and at USD 1,840-1,870/mt. The most active SHFE 1504 lead contract is expected to rise to RMB 12,500-12,650/mt due to improving short-term technical indicators. Spot lead in China should trade at RMB 12,550-12,650/mt.